Chart of the Day: Tesla Shorts Throw in the Towel

Skeptical investors are finding it harder and harder to bet against Tesla Motors Inc.

Short interest, or bearish bets, against the luxury electric-car marker has been trending lower over the past few months. Currently about 12.3% of Tesla shares are on loan, the lowest level since April 2011, according to securities-financing tracker Markit. The drop in short interest has coincided with a massive rally in the stock price.

Investors who short stocks sell borrowed shares in hopes of buying them back at lower prices and profiting from the difference. If declines fail to materialize, as has been the case with Tesla’s 350% rally this year, these investors are often forced to switch their positions in droves, a development known as a short squeeze that pushes prices higher.

Judging by the chart above, short interest has leveled off since June, suggesting the latest leg of the rally has actually been driven by investors getting long the stock rather than shorts getting squeezed out of their positions.

Even though short interest has fallen to 12.3%, that’s still almost two-thirds of the supply of shares that can be borrowed, says Alex Brog, a director at Markit, which means demand to short Tesla still remains relatively high.

Tesla shares jumped after the company’s quarterly results exceeded Wall Street’s estimates. The company said it delivered more vehicles than analysts were expecting and gross margins rose higher than previously anticipated.

“Couldn’t have asked for a better report,” says Elaine Kwei, equity analyst at Jefferies. “Tesla delivered on all fronts.”

The stock jumped as much as 18% on Thursday, hitting a fresh intra-day record above $158.

The question now is whether the latest earnings-related surge in the stock price will prompt another leg down in short interest. We’ll check back with the data later this month and keep you posted.